Question 66:
From the following information, calculate:

(a) 
Proprietary ratio; 



(b) 
Debt to equity ratio; and 



(c) 
Total assets to debts ratio 


Current Debt Capital employed 
`18,00,000 `15,00,000 
Current Assets Working Capital 
`7,50,000 `1,50,000 

Answer;
Proprietary ratio=shareholders’ fund/total asset × 100
Proprietary ratio=3,00,000/21,00,000×100=14.29%
Total asset= capital employed + current liability
21,00,000= 15,00,000 + 6,00,000
Current liability= current assets  working capital
6,00,000= 7,50,000 1,50,000
Shareholders' fund= capital employed noncurrent liabilities
3,00,000= 15,00,000 12,00,000
Debt = total debts current liabilities
12,00,000 =18,00,000 6,00,000
(b) Debt equity ratio
Debt to equity ratio= debt/equity
Debt to equity ratio =12,00,000/3,00,000
Debt to equity ratio =4/1
(c)
Total asset to debt ratio= total asset/ Debt
Total asset to debt ratio=21,00,000/12,00,000
Total asset to debt ratio=1.75:1
Interest Coverage Ratio
Question 67:
If Net Profit before Interest and Tax is `10,00,000 and interest on Longterm Funds is `2,00,000, find Interest Coverage Ratio.
Answer:
Net Profit before Interest and Tax = 10,00,000
Interest = 2,00,000
Interest Coverage Ratio= Net Profit before Interest and Tax/Interest
Interest Coverage Ratio =10,00,000/2,00,000
Interest Coverage Ratio = 5 times
Question 68:
From the following information, calculate Interest Coverage Ratio: Profit after Tax `4,25,000; Tax `75,000; Interest on Longterm Funds `1,25,000.
Answer:
Profit before Interest and Tax = Profit after Tax + Tax +Interest
Profit before Interest and Tax = 4,25,000 + 75,000 + 1,25,000
Profit before Interest and Tax = 6,25,000
Interest Coverage Ratio= Net Profit before Interest and Tax/Interest
Interest Coverage Ratio =6,25,000/1,25,000=5 times
Question 69;
From the following detail, calculate Interest Coverage ratio;
Net profit after Tax 
`7,00,000 
6% Debentures 
`20,00,000 
Tax Rate 30% 

Answers;
Interest coverage ratio= net profit before interest and tax/ interest on long term debt
Interest coverage ratio =11,20,000/1,20,000
Interest coverage ratio =9.33
Working notes;
Wn1
Net profit after tax=7,00,000
Tax rate 30%
Net profit after tax = 70%
Net profit before tax=7,00,000 × 100/70
Net profit before tax= 10,00,000
Wn2
Interest on loan term borrowings=20,00,000×6/100=1,20,000
Net profit before Interest and tax= 10,00,000+1,20,000=11,20,000
Question 70;
From the following information, calculate Interest Coverage ratio;
Net profit after interest and Tax `1,20,000; Rate of Income tax;40%; 15%; Debentures `1,00,000; 12% Mortgage loan `1,00,000.
Answers;
Interest coverage ratio = net profit before interest and tax / interest on long term debt
Interest coverage ratio = 2,27,000/ 27,000
Interest coverage ratio = 8.41 times
Working notes;
Wn1
Net profit after interest and tax 1,20,000
Rate of income tax 40%
Net profit before tax= 60%
Net profit before tax=1,20,000×100/60=2,00,000
Wn2
Interest on long term borrowings= 27,000
Interest on debenture= 1,00,000 × 15 / 100= 15,000
Interest on 12% Mortgage loan= 1,00,000 ×12 / 100= 12,000
Net profit before interest and tax= 2,00,000+ 27,000 =2,27,000
Ts Grewal Solution 20232024
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Class 12 / Volume – I
Chapter 3 – Accounting Ratio